Critically evaluate the comparative transnational effectiveness of Benetton and Zara

Zara and Benetton are two of the most acknowledged clothing companies in the fast fashion industry. The different international business strategies they adopt result in different transnational effectiveness. To begin with, this essay will give a brief overview of the motivation, means and mentality of these two companies, and then compare how they sustain their competitive advantages through integration, responsiveness and flexibility. Next, it will highlight their evolving strategies and demonstrate the structures, worldwide learning and innovation models they adopt to support the strategies. Finally, the evolving global roles will be analyzed.
Motivation, Means and Mentality
As well-known leading clothing corporates, Zara and Benetton both choose to expand aboard. Although their motivations to internationalize are quite similar, their means and mentalities are different in many ways.
Basically, there are two kinds of motivations: traditional motivations and emerging motivations. The biggest traditional factor that drives Zara and Benetton to expand aboard is market-seeking. The former CEO of Inditex, Jose Maria Castellano, pointed out that the limited market growth potential in domestic market was the main driver for Zara to go aboard (Martinez, 1997). In 1988, Zara opened its first overseas store in Oporto, Portugal as the first step to occupy global market (Lopez and Fan, 2009). Nowadays it has expanded into 88 countries and has more than 6,500 shops worldwide (Ruddick, 2014). Like Zara, Benetton set up its first overseas retail store only one year after the opening of 3 domestic shops. In 2009, foreign market accounts for around half of Benetton’s overall sales (Palladino, 2010). Zara and Benetton’s global expansion is also driven by emerging motivations. They both capture global demand to achieve scale economies. Because Zara and Benetton competes in a fast fashion industry, they focus on producing some basics that can meet universal needs and sells aboard to achieve economies of scale.
Although Zara and Benetton carry the similar motivation to global expansion, they enter global market in different modes. Zara mainly uses wholly-owned subsidiary to achieve internationalization. By contrast, Benetton usually takes the form of
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franchising and licensing. It is the first Italian fast fashion corporate that uses the quasi-franchising system to retailing (Crestanello and Tattara, 2009). Mentality refers to company’s strategy to go aboard. In general, Zara is evolving from global mentality to transnational mentality, while Benetton is witnessing the transformation from international mentality to global mentality.
Developing Transnational Strategies
Initially, ZARA and Benetton adopted Global Strategy and International Strategy respectively, for achieving the goals of global efficiency, flexibility and global learning.
Firstly, for achieving the global efficiency, both ZARA and Benetton take the advantage of national differences by centralizing the capital-intensive production, meanwhile, transferring partial labor-intensive activities in relatively low labor cost countries. For example, ZARA conducts about 64% of the production within the Spain radius area for protecting the production know-how, with 36% of the production of basic styles in Asia and Africa to reduce the production cost. Comparatively, Benetton mostly controls 80% of its production at home to enjoy the accession to superior domestic textile, with 20% of its basic products’ production in other regions (Decken, 2010). Additionally, the two companies pursue economies of scales in different ways. For example, ZARA triples other competitors’ annual sales by offering limited quantity but diversified choices to fashion-oriented customers to spread production costs. On the contrary, Benetton produces a considerable amount of garments dyeing with multiple colors but in limited styles, at the same time beats the competitors with the superior textile and dyeing quality, it enjoys higher margin from the standardized production with higher pricing (Fox, 2011).
Secondly, in terms of pursuing global flexibility, ZARA and Benetton adopt different entry modes to realize different levels of risk aversion. As mentioned above, ZARA expands mainly through wholly owned subsidiaries to guarantee tightly controlled and globally standardized operation. Benetton, by contrast, expands typically through franchising and licensing to avoid the macro risks of specific markets.
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Thirdly, in regard to global learning, these two companies adopts different innovation models. ZARA aims to ‘discover’ and ‘reactively follow’ the fashion trends emerging globally, while Benetton proactively ‘create’ the fashion trends with exploring its own innovations. Details will be given later.
On balance, both ZARA and Benetton provide standardized products to the world markets. Nevertheless, due to different pricing and different capabilities, ZARA turns out to adopt the Global Strategy as it faces slightly higher pressure of cost reduction than Benetton. In contrast, Benetton preempts the competitors with excellent quality and superior technology through the International Strategy.
Notwithstanding, both strategies evolve for strengthening the competitive advantages and building blocks for competitors. ZARA, comparing with Benetton, differentiates itself with increasing customer responsiveness, thus transforms to Transnational

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Strategy (Figure 1). By making good use of its capabilities like telecommunication information system, Zara makes sure the instant weekly tracking of different regions’ preferences with slightly adjusted offerings (Horn and Faulkner, 2010). These reduce the inventory cost of the unsalable product, besides, increase the sales margin by customer satisfaction. In terms of Benetton, even though it has the advantages of exclusive technology and superior quality, the cost and prices pressure from the emerging competitors like H&M and ZARA have forcing Benetton to further cut its cost, therefore chasing after Global Strategy instead, to be better off in the competition. For example, evidence shows that Benetton’s low cost advantage with JIT supported production (inventory cost 18% over total sales), almost surpassed by ZARA’s complex customer responsive oriented JIT system (inventory cost less than 10% over total sales) (Hill, and Jones, 2012).
Developing a Transnational Organization
To manage and support the process of changes in the strategies, Zara and Benetton applied different structures. Zara used to develop a centralized hub to support its global strategy. It centralized its core capabilities and resources, and made decisions at home, while regarded the subsidiaries as the delivery pipelines to the global market. For example, the factories in Europe produced more complex and fast fashion products, leaving standard products produced in Asia (Lopez and Fan, 2009). One reason is that Zara considered that European consumers were more enthusiastic about fashion and shared the same taste. For another reason, Zara aimed to retain its competitive advantages, such as cost leadership, quality assurance and quick response to fashion trend, all of which required the company to have a tight control over operation and decision making (Jose, 2010). To achieve this, Zara established the integrated supply chain and maintained its key business elements, namely design, manufacture, logistics and distribution around headquarter in Spain.
To conform to the evolving Transnational Strategy, Zara is transforming to the integrated network structure, in which each subsidiary is regarded as a source of knowledge, ideas, resources and capabilities. Therefore, Zara’s global stores are responsible for sensing the dynamic local customer demands and sending the information directly to headquarter in Spain (Hume, 2011). Furthermore, this
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structure is facilitated by Zara’s advanced information system, which transfers the customer and inventory information among all the business units and contributes to the design and production decisions of the company.
Unlike Zara, in the 1990s, Benetton started to adopt coordinated federation structure so that it could implement international strategy more efficiently. During this period, Benetton’s leading position in fashion market was challenged by emerging rivals such as Zara, H&M and Gap, and its resources and capabilities were no longer competitive (Jose, 2010). Accordingly, it was forced to leverage its manufacturing capabilities and transfer parent technology and expertise to local subsidiaries. Although the overall coordination was controlled by headquarter, Benetton delegated part of its responsibilities and gave autonomy to local subsidiaries to adapt local differences. To alleviate cost reduction pressure resulting from the fiercer competition, Benetton transforms to Global Strategy and Centralized Hub Structure. The significant concepts of design and production are kept in the centre and the job for the subsidiaries is just producing the standardized products.
Worldwide Learning and Resulting Effective Innovation
Generally, Zara has been transferring from the traditional innovation model of centre- for-global to the transnational one of locally leveraged. In regard to the central innovations, the design teams of Zara gather sufficient inspiration from the world's ‘big-four-fashion-week’ and then design new styles within in a few days in headquarter. New styles are produced in-house and then distributed uniformly across Zara stores all over the world. Zara makes such central innovation effective through its advanced hybrid information and communication system. In terms of gaining subsidiary input and responding to national needs, Zara gives store managers significant autonomy in product display and inventory management within their stores and relies on store managers to feed back market research and store trends to design teams in headquarter (Tan, 2010). Such information transfer process allows Zara to keep pace with the ever-changing fashion trend and continuously launch new products to meet customer demand.
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Zara’s central innovation has also been supplemented by the evolving locally leveraged innovations. Zara has brought the Asian fashion trends to the British high street. For example, the Kurta kind blouse was initially designed specially for the Middle East and South Asian markets. Following its popularity and success in these markets, Zara launched this kind of clothes in the United Kingdom. Finally, Asian fashion became the mainstream fashion this season on the British high street thanks to Zara (Khan, 2014).
In contrast, Benetton is still striving to make the central innovations effective. Every year, Benetton’s design centre in Italy selects innovative ideas from Fabrica, a communication research centre, and combines them with market trends to create new seasonal collections for its franchisers around the world. Recent years, to better manage this centre-for-global process, Benetton has established directly operated stores to strengthens the retail network and transmit feedbacks on sales and consumer preference from retailers directly to headquarter (Jose, 2010). This action helps Benetton gain subsidiary input into centralized activities and greatly improves the effectiveness of the central innovation.
An Evolving Global Role
To enable their own transnational enterprises to sustain effectiveness, Zara and Benetton take into account their roles and responsibilities in the global context with the expansion penetrating. Zara is more like an exploitive MNE that leveraged low- cost factors of production to capture competitive advantage regardless of its responsibility for negative impact on emerging countries. Zara created more eco- friendly products and made a commitment to Greenpeace to eliminate release of hazardous chemicals into environment (Greenpeace, 2012). Nevertheless, it was more notorious of using sweatshops in many countries such as Argentina and Brazil in which the wages were significantly lower than those in developed countries, so were the working conditions, the safety standards, and even the human rights of the workers. Therefore, consumers worldwide boycotted Zara products. To cope with this situation, Zara seeks to collaborate with NGOs, unions and business associations to train labors and also improve pay level and working conditions to make itself more responsive (Alexander, 2013).
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Nevertheless, Benetton is more like a transformative MNE that takes a larger role in developing countries to mitigate the massive issues that their population and government face. Although Benetton had been involved in sweatshop scandals, they demonstrated that they improved working conditions and worked on Corporate Social Responsibility policy (The Guardian, 2011). Furthermore, Benetton concentrates on public awareness of social and global issues such as AIDS, war and poverty. An illustration is that in 1993, Benetton initiated a special project to distribute second- hand clothing to the poor, cooperating with the International Federation of the Red Cross and other NGOs (Bryan and David, 2011). Benetton also launched a campaign working together with Senegal’s musician to promote micro-credit to alleviate the poverty in Africa (Seagraves, 2008).
To conclude, Zara and Benetton perform quite different in global market. Although they are driven by similar motivations, they enter overseas market in different modes and pursue distinct mentalities. Considering their degrees of integration, responsiveness and flexibility, Zara is in the process of transforming from global strategy to transnational strategy, while Benetton is evolving from international strategy to global strategy. Zara and Benetton adjust their organizational structure in accordance to their strategies. Besides, Zara evolves innovation model from centre- for-global to locally leveraged, but Benetton still makes efforts to realize efficient central innovations. In general, Zara is viewed as a benchmark in fast fashion industry and outperforms Benetton. Nevertheless, Zara nowadays suffers from the scandal of using sweatshops, while Benetton is highly committed to corporate social responsibility.